The euro declined against most of its major counterparts amid speculation Greek Prime Minister George Papandreou will struggle to pass additional austerity measures, even after winning a confidence vote last night. The common currency retreated from a one-week high against the dollar, falling the most against the Korean won and Taiwan’s dollar among 16 major peers tracked by Bloomberg. Papandreou will seek approval next week for a 78 billion-euro ($112 billion) package of budget cuts and asset sales to stave off the threat of default. The pound fell against the dollar as minutes of the latest Bank of England showed some policy makers saw a risk that more bond purchases may be required. “Markets are refocusing on the fact that the euro zone has dodged the bullet in terms of the confidence vote, but now we are looking forward to the austerity vote,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “Whether the response will continue to be the case for the austerity measures next week is a little bit more questionable.” The euro fell 0.4 percent to $1.4362 at 10:58 a.m. in London. It earlier rose to $1.4434, the strongest level since June 15. The shared currency also lost 0.4 percent against its Japanese counterpart, to 115.22 yen. The dollar was little changed at 80.24 yen. Europe’s common currency has dropped 0.9 percent over the past three months, according to Bloomberg Correlation-Weighted Currency Indexes, which track 10 developed-nation currencies. The Swiss franc has climbed 5.6 percent as investors sought a haven from the debt crisis. IMF Warning The International Monetary Fund, contributor of a third of the bailout money for Greece and the two other euro-area countries that have received bailouts, Ireland and Portugal, has warned European Union leaders that a failure to take decisive action on the debt crisis risks triggering “large global spillovers.” Gains by the dollar may be limited as the Fed ends a two- day policy meeting and Chairman Ben S. Bernanke holds a press conference. Policy makers will keep the benchmark at zero to 0.25 percent, where it’s been since December 2008, according to economists surveyed by Bloomberg. The committee will “firm up” language around keeping borrowing costs low for an extended period and apply that to its balance sheet as well, BNP Paribas SA analysts led by New York- based Ray Attrill wrote in a note to clients. Fed Outlook The Fed is scheduled to end its $600 billion second round of bond-buying, known as quantitative easing, this month. Futures show the likelihood policy makers will increase the target rate by March 2012 dropped to 21 percent from 30 percent a month ago. “I don’t think the FOMC decision will support the dollar,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “While they will signal the end of the current quantitative easing scheduled end of June, that’s fully anticipated.” The pound slid 0.8 percent to $1.6123 and was 0.4 percent weaker at 89.10 pence per euro. The majority of the Monetary Policy Committee said the “current weakness of demand growth was likely to persist for longer than previously thought,” according to minutes of the June 8-9 Bank of England meeting published today in London. Europe’s debt crisis highlighted the potential for further shocks, and for some members, it “was possible that further asset purchases might become warranted,” the notes showed. MPC Vote Bank of England Chief Economist Spencer Dale and Martin Weale continued a push for a quarter-point increase in the benchmark rate, while Governor Mervyn King and the other six members of the committee voted for no change. Adam Posen kept up a call for more bond purchases. The euro may fall back to levels last seen in February in the second half of 2011 on risks that contagion from Greece will affect countries including Ireland and Portugal, Aberdeen Asset Management Plc said. “The European situation is not just about Greece,” said Anthony Michael, the Singapore-based head of Asia-Pacific fixed income at Aberdeen Asset, which manages $103 billion of investments in the region. “It’s also about Ireland, Portugal and Spain, and the risk of contagion out of Greece and across the banking industry throughout Europe.” The 17-nation currency to as low as $1.35 in the second half of the year, which would be the weakest since Feb. 16. The median forecast of economists in a Bloomberg survey is for it to trade at $1.41 by year-end. To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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